Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
92

Nuclear decommissioning
99
Amendment of section 29 of the Energy Act 2004
(1)
Section 29 of the Energy Act 2004 (c. 20) (disregard for tax purposes of
cancellation etc of decommissioning provisions) is amended as follows.
(2)
In subsection (1)—
5
(a)
in paragraph (a), for “relevant company” substitute “BNFL company”;
(b)
for paragraphs (b) and (c) substitute—
“(b)
that provision—
(i)
relates to decommissioning or cleaning-up
which the NDA acquires or has acquired
10
responsibility for securing by virtue of a
direction under section 3, but
(ii)
is not provision recognised in order to reflect the
terms or effect of a management contract
between the company and the NDA;
15

and
(c)
the responsibility referred to in paragraph (b)(i)—
(i)
includes the financial responsibility under
section 21, or
(ii)
would do so but for the fact that the amount of
20
the financial responsibility is for the time being
subject to a limit imposed by a capping
agreement.”
(3)
For subsections (3) and (4) substitute—
“(3)
This subsection applies to a credit or debit if it arises from—
25
(a)
the recognition in the accounts of the company for a relevant
period beginning on or after 1st April 2005 of—
(i)
the relevant provision, or
(ii)
an asset that, in accordance with generally accepted
accounting practice, is recognised in connection with the
30
relevant provision in order to reflect the acquisition of
financial responsibility referred to in subsection (1) (a
“matching asset”);
(b)
an adjustment made in the accounts of the company for such a
period of—
35
(i)
the relevant provision, or
(ii)
a matching asset;

or
(c)
the removal from the accounts of the company for such a period
of—
40
(i)
the relevant provision,
(ii)
a matching asset, or
(iii)
an asset or liability recognised in order to reflect the
terms or effect of a contract falling within subsection
(3A).
45
(3A)
A contract falls within this subsection if—

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
93

(a)
it is a contract made before 1st April 2005 and having effect
between two or more BNFL companies under which a party to
the contract assumed responsibility for securing
decommissioning or cleaning-up; and
(b)
the rights and obligations under the contract are extinguished
5
by reason of a transfer made under a nuclear transfer scheme.”
(4)
In subsection (5)—
(a)
for the definition of “BNFL company” substitute—
““BNFL company” means—
(a)
BNFL,
10
(b)
a company that immediately before 1st April
2005 was a wholly-owned subsidiary of BNFL,
or
(c)
a wholly-owned subsidiary of a company falling
within paragraph (b);”;
15
(b)
after that definition insert—
““capping agreement” means an agreement under
subsection (9) of section 21, entered into on 1st April
2005, the sole or main effect of which is to impose a limit
on the NDA’s financial responsibility under that
20
section;
“management contract” has the same meaning as in section
27;”;
(c)
for the definition of “relevant company” substitute—
““relevant period”, in relation to a company, means an
25
accounting period during the whole of which the
company is publicly owned;”.
(5)
After that subsection insert—
“(5A)
Where a company ceases to be publicly owned otherwise than at the
end of an accounting period—
30
(a)
the accounting period during which it ceases to be publicly
owned is treated for the purposes of corporation tax as ending
when it so ceases; and
(b)
its profits and losses are to be computed accordingly for those
purposes.”
35
(6)
The amendments made by this section have effect in relation to accounting
periods of a BNFL company ending on or after 22nd March 2006.

“BNFL company” has the same meaning as in section 29 of the Energy Act 2004
(c. 20) as amended by this section.
100
Amendment of section 30 of the Energy Act 2004
40
(1)
Section 30 of the Energy Act 2004 (disregard for tax purposes of
decommissioning provisions recognised by Nuclear Decommissioning
Authority) is amended as follows.
(2)
In subsection (1)—
(a)
for paragraph (b) substitute—
45
“(b)
that responsibility—

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
94

(i)
includes the financial responsibility under
section 21, or
(ii)
would do so but for the fact that the amount of
the financial responsibility is for the time being
subject to a limit imposed by a capping
5
agreement;”
(b)
in paragraph (c) omit “on the coming into force of the direction
mentioned in paragraph (a),”;
(c)
at the end of that paragraph insert “; and
(d)
the provision is recognised—
10
(i)
in order to reflect the coming into force of the
direction mentioned in paragraph (a), or
(ii)
in consequence of the variation or removal of a
limit on the NDA’s financial responsibility
under section 21 imposed by a capping
15
agreement.”
(3)
For subsection (3) substitute—
“(3)
In computing the profits, gains or losses of the NDA for the purposes
of corporation tax, no amount shall be brought into account in
connection with—
20
(a)
the recognition made in the accounts of the NDA of—
(i)
the relevant provision, or
(ii)
an asset that, in accordance with generally accepted
accounting practice, is recognised in order to reflect a
limit on the NDA’s financial responsibility under
25
section 21 imposed by a capping agreement;
(b)
any adjustment made in those accounts (including the removal
from the accounts of an asset falling within paragraph (a)(ii)) in
consequence of a variation or removal of the limit mentioned in
paragraph (a)(ii).”
30
(4)
In subsection (4), for the words after “in connection with” substitute “an
adjustment not falling within paragraph (b) of that subsection”.
(5)
In subsection (5), after the definition of “BNFL company” insert—
““capping agreement” has the same meaning as in section 29;”.
(6)
The amendments made by this section have effect in relation to accounting
35
periods of the Nuclear Decommissioning Authority ending on or after 22nd
March 2006.
Accounting practice
101
Securitisation companies
(1)
Section 83 of FA 2005 (application of accounting standards to securitisation
40
companies) is amended as follows.
(2)
In subsection (1)(b) (periods of account in relation to which old UK GAAP is to
apply) for “1st January 2007” substitute “1st January 2008”.
(3)
In subsection (3) (meaning of “note-issuing company”)—
(a)
omit “and” at the end of paragraph (c);
45

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
95

(b)
after paragraph (d) insert—

“, and
(e)
if it has any business apart from the activity mentioned
in paragraph (a) (and any incidental activities) it
consists in one or both of the following—
5
(i)
acquiring, holding and managing assets forming
the whole or part of the security for the capital
market arrangement;
(ii)
acting as guarantor in respect of loan
relationships, derivative contracts, finance leases
10
or other liabilities of other companies where the
whole, or substantially the whole, of the
company's rights in respect of the guarantee
(including any right of subrogation) form the
whole or part of the security for the capital
15
market arrangement.”.
(4)
In subsection (5) (meaning of “intermediate borrowing company”)—
(a)
in paragraph (a) after “asset-holding company”, and
(b)
in paragraph (b) after “note-issuing company”,

insert “(or another intermediate borrowing company)”.
20
(5)
In section 84 of that Act (power to make provision as to application of
Corporation Tax Acts in relation to securitisation companies)—
(a)
in subsection (3)(d)—
(i)
at the end of sub-paragraph (i) insert “, and”, and
(ii)
omit sub-paragraph (ii) and the word “and” following it;
25
(b)
in subsection (5), omit paragraph (a).
(6)
The amendments in this section shall be deemed always to have had effect,
subject as follows.
(7)
A company that would have been a securitisation company for the purposes of
section 83 of FA 2005 if the amendments in this section had not been made,
30
being either—
(a)
a note-issuing company that—
(i)
had become party as debtor to the capital market investment
before 22nd March 2006, or
(ii)
had before that date entered into a binding arrangement to
35
become a party as debtor to the capital market investment, or
(b)
another description of securitisation company by virtue of its
connection with a company within paragraph (a),

may elect to be taxed as if the amendments in subsection (3) had not been
made.
40
(8)
Any such election must be made not later than 31st March 2007 and has effect
for all relevant periods of account.
102
Accountancy change: spreading of adjustment
(1)
Schedule 15 to this Act (accountancy change: spreading of adjustment) has
effect.
45
(2)
In that Schedule—

Finance (No.2) Bill
Part 4 — Real Estate Investment Trusts
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Part 1 makes provision for income tax purposes, and
Part 2 makes provision for corporation tax purposes.
(3)
In section 21B of ICTA (corporation tax: application to Schedule A business of
other rules applicable to Case 1 of Schedule D) for “section 44 of and Schedule
6 to the Finance Act 1998” substitute “section 64 of and Schedule 22 to the
5
Finance Act 2002”.
Part 4
Real Estate Investment Trusts
Introduction
103
Real Estate Investment Trusts
10
(1)
This Part enables a company which carries on property rental business (within
the meaning of section 104) and which satisfies the requirements of sections
106 to 108 to opt to—
(a)
benefit from exemptions from corporation tax on profits and gains in
accordance with sections 119 and 124, and
15
(b)
have liabilities to tax imposed on the company and the recipients of
distributions made by the company in accordance with sections 112,
121 and 122.
(2)
This Part makes similar provision in relation to groups of companies (sections
134 to 136 and Schedule 17).
20
(3)
A company or group to which this Part applies may be referred to as a Real
Estate Investment Trust.
104
Property rental business
(1)
In this Part “property rental business” means business that is or forms part of—
(a)
a Schedule A business (within the meaning of section 832(1) of ICTA),
25
or
(b)
an overseas property business (within the meaning of section 70A(4) of
ICTA).
(2)
But—
(a)
business of a kind listed in Part 1 of Schedule 16 is not property rental
30
business, and
(b)
business is not property rental business if or in so far as it gives rise to
income or profits of a kind listed in Part 2 of that Schedule.
105
Other key concepts
(1)
In this Part “entry” means the time when this Part begins to apply to a
35
company.
(2)
In this Part “cessation” means the time when this Part ceases to apply to a
company.
(3)
In this Part, in relation to a company—

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Part 4 — Real Estate Investment Trusts
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(a)
“C (pre-entry)” means the company before this Part begins to apply to
it,
(b)
“C (tax-exempt)” means the company in so far as it carries on tax-
exempt business (within the meaning of section 107(2)) while this Part
applies to it,
5
(c)
“C (residual)” means the company in so far as it carries on non-tax-
exempt business while this Part applies to it, and
(d)
“C (post-cessation)” means the company after this Part has ceased to
apply to it.
106
Conditions for company
10
(1)
A company may give notice for this Part to apply to it in accordance with
section 109 only if it satisfies Conditions 1 to 3 below.
(2)
In order for this Part to apply to a company in respect of an accounting period,
Conditions 1 to 6 below must be satisfied in relation to the company
throughout the accounting period.
15
(3)
Condition 1 is that the company—
(a)
is resident in the United Kingdom, and
(b)
is not resident in another place in accordance with the law of that place
relating to taxation.
(4)
Condition 2 is that section 236 of the Financial Services and Markets Act 2000
20
(c. 8) (open-ended investment companies) does not apply to the company.
(5)
Condition 3 is that the shares forming the company’s ordinary share capital are
listed on a recognised stock exchange.
(6)
Condition 4 is that the company—
(a)
is not a close company (within the meaning of section 414 of ICTA), or
25
(b)
is a close company only by virtue of having as a participator (within the
meaning of section 417 of ICTA) a limited partnership which is a
collective investment scheme within the meaning of section 235 of the
Financial Services and Markets Act 2000 (c. 8);

and for the purposes of paragraph (a) a company shall be treated as a close
30
company if it is prevented from being a close company only by section 414(5)
or 415(4)(a) of ICTA.
(7)
Condition 5 is that—
(a)
each share issued by the company either—
(i)
forms part of the company’s ordinary share capital, or
35
(ii)
is a non-voting fixed-rate preference share (within the meaning
of paragraph 2 of Schedule 25 to ICTA (acceptable distribution
policy), and
(b)
there is no more than one class of ordinary share issued by the
company.
40
(8)
Condition 6 is that in the case of any loan to which the company is party—
(a)
the loan creditor is not entitled to an amount by way of interest which
depends to any extent on the results of all or part of the company’s
business or on the value of any of the company’s assets,
(b)
the loan creditor is not entitled to an amount by way of interest which
45
exceeds a reasonable commercial return on the consideration lent, and

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Part 4 — Real Estate Investment Trusts
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(c)
the loan creditor is entitled on repayment to an amount which either
does not exceed the consideration lent or is reasonably comparable
with the amount generally repayable (in respect of an equal amount of
consideration) under the terms of issue of securities listed on a
recognised stock exchange.
5
107
Conditions for tax-exempt business
(1)
In order to be a company to which this Part applies in respect of an accounting
period—
(a)
the company must throughout the accounting period have a property
rental business in respect of which Conditions 1 to 3 below are satisfied
10
(whether or not it also has other business), and
(b)
Condition 4 below must be satisfied in relation to that property rental
business in respect of that accounting period.
(2)
Property rental business of a company is “tax-exempt business” for the
purposes of this Part in respect of an accounting period if—
15
(a)
Conditions 1 to 3 are satisfied throughout the accounting period in
relation to the business, and
(b)
Condition 4 is satisfied in respect of the accounting period in relation to
the business.
(3)
Condition 1 is that the property rental business involves at least three
20
properties.
(4)
Condition 2 is that no one property represents more than 40% of the total value
of the properties involved in the property rental business.
(5)
Condition 3 is that the property rental business must not involve property that
would fall in accordance with generally accepted accounting practice to be
25
described as owner-occupied.
(6)
For the purposes of Conditions 1 to 3—
(a)
a reference to a property involved in a business is a reference to an
estate, interest or right by the exploitation of which the business is
conducted,
30
(b)
a property is a single property if it is designed, fitted or equipped for
the purpose of being rented, and it is rented or available for rent, as a
commercial or residential unit (separate from any other commercial or
residential unit),
(c)
assets must be valued in accordance with international accounting
35
standards (within the meaning of section 50(2) of FA 2004),
(d)
where international accounting standards offer a choice of valuation
between cost basis and fair value, fair value must be used, and
(e)
no account shall be taken of liabilities secured against or otherwise
relating to assets (whether generally or specifically).
40
(7)
For the purpose of Condition 3—
(a)
if the shares of one company are stapled to the shares of another, the
two shall be treated as a single company, and
(b)
for this purpose shares of one company are stapled to shares of another
if in consequence of the nature of the rights attaching to the shares of
45
the one company (including any terms or conditions attaching to the
right to transfer the shares) it is necessary or advantageous for a person